FINANCING NEW VENTURES

Simple questions and simple answer.

Each topic choose 2 or 3 questions to answer in a short paragraph (2 or 3 sentences)

Terms for Splitting the Rewards

 Preferred Dividends 

Who declares the dividend?   

What happens in following years if dividends are not declared in one year?

What does it mean when dividends are automatically declared on conversion?

What is a reasonable dividend rate?  

-Preferred Stock and their Liquidation Preferences

Why do investors insist on preferred stock?   Why not just common stock?

Why are the preferred shares convertible into common stock?   When will they be converted?   When will they not be converted?

What do you think is a reasonable liquidation preference?

 Anti dilution

What is the purpose of anti dilution?  Is anti-dilution even really fair?

Who does it benefit?

What is the worst anti dilution clause?

In a worst case anti dilution scenario, what could happen to the founders of a company?

How does Pay to Play potentially benefit the entrepreneur in the event of an anti dilution?

Allocating Control

 Board of Directors

Why is Board composition likely to be the second most contentious negotiation (after valuation)?  Are board seats allocated by ownership % ?

Who should be on the Board?   

Why is an independent director important?

What are the risks with a non-voting observer position?

 Various rights of investors

(This topic is special, just need to reply this paragraph)

Why can granting the right of access to the books and records to an investor be of benefit to an entrepreneur?

The right means investors have the right to access to the premises of the company and to examine records if they do not believe obtaining accurate or timely information from the company. It can actively realize the investor’s supervisory and control rights, also, it can help investors understand the company’s financial and business operations. At the same time, I think the entrepreneur can know what the investors really pay attention to and help to set and reach special milestones. Under the supervisory of investors, the behavior of the entrepreneur also can be regulated and help improve the transparency of the company.

Reply this paragraph:(agree and why agree)